Australia’s Rudd May Lift Business Confidence, Investors Say

Kevin Rudd, Australia's prime minister-elect, speaks to journalists following his victory in the party leadership ballot in Canberra, Australia, on Wednesday, June 26, 2013. Photographer: Mark Graham/Bloomberg

June 27 (Bloomberg) -- Kevin Rudd’s victory as leader of
Australia’s governing Labor Party may boost consumer and company
confidence before an election that could be held as early as
August, according to investors, economists and business leaders.

Rudd, 55, prevailed yesterday over Julia Gillard, 51, in a
57-45 vote among Labor lawmakers that underscored the party’s
split between the man who swept Labor to power in 2007 and the
woman who ousted him in 2010. Business groups and economists
called on Rudd to bring forward a scheduled Sept. 14 election.

The former diplomat, who says he has learned from his first
tenure as prime minister, yesterday pledged to work closely with
business as he faces an election with a weakening economic
outlook that’s prompted the central bank to cut interest rates
to a record low. Rudd, who was sworn in as prime minister in
Canberra today, resisted calls from the opposition party to set
an election date.

“We’d call for an election as soon as possible because
business confidence is low and to fix that we need to get this
election done,” Business Council of Australia President Tony
Shepherd said in a telephone interview.

He was backed by Australia & New Zealand Banking Group Ltd.
Australian economist Ivan Colhoun, who wrote in a report: “The
main issue for markets is what the events of today mean for the
timing of the election. An earlier election may lift business
and consumer confidence, which appears to have been weighed down
by political uncertainty.”

Currency, Stocks

The Australian dollar rose 0.4 percent to 93.14 U.S. cents
as of 4:41 p.m. in Sydney. Benchmark 10-year government bonds
rose, sending the yield down three basis points to 3.81 percent,
according to Bloomberg Bond Trader prices. The S&P/ASX 200
Index, the country’s benchmark equities gauge, rose for a second
day, to close 1.7 percent higher at 4,811.30.

Gross domestic product expanded 2.5 percent in the first
quarter from a year earlier, the weakest reading since the
second quarter of 2011, a Bureau of Statistics report showed
June 5. The median estimate among 35 economists is for 2013
growth of 2.5 percent, down from a 2.7 percent forecast in
January, a Bloomberg poll shows.

“Looking at our global economic circumstances, we have
tough decisions ahead on the future of our economy,” Rudd told
reporters in Canberra yesterday. “There’s a big future for
Australian manufacturing under this government. Business is a
group that this government will work with very closely.”

Carbon Tax

Rudd may bring forward plans to link the nation’s carbon
market with Europe’s, Daniel Rossetto, managing director of
Climate Mundial, said by e-mail from London.

Tony Abbott, leader of the opposition Liberal-National
coalition, may also abolish a fixed-price period for carbon
market if he wins office at the election, Rossetto said.

“Rudd’s success in the caucus ballot puts to rest the
leadership distraction which has added to the political
uncertainty weighing on our community and economy,” Innes
Wilcox, chief executive officer at Australian Industry Group,
which represents more than 60,000 businesses, said in an e-mail.
“Business will be deeply interested in his policy approaches
ahead of the election.”

Interest-rate swaps data compiled by Bloomberg show traders
see a 28 percent chance the central bank will lower its
benchmark interest rate to 2.5 percent at the next meeting on
July 2.

“It’s a bit of a circuit breaker around confidence,”
Peter Esho, investment adviser in Sydney at Wilson HTM
Investment Group, which oversees about $11.8 billion, said in a
telephone interview. “It will be positive in terms of
confidence.”

Mining Tax

Shortly after becoming prime minister, Gillard negotiated a
30 percent levy on resource profits with BHP Billiton Ltd., Rio
Tinto Group and Xstrata Plc. The tax will reap A$1.8 billion
less in revenue for the year to June 30 than previously
forecast, budget documents showed May 14. Abbott has vowed to
repeal the mining tax and carbon levy.

“If Australia is to continue to enjoy the benefits of the
mining boom, we must acknowledge our drifting international
competitiveness and set about remedying the problem,” Mitch
Hooke, Minerals Council of Australia chief executive officer,
wrote in an e-mail. Rudd should focus on spurring economic
growth, he added.

The Australian dollar had dropped 11 percent against its
U.S. counterpart this quarter, the biggest decline since it
plunged to a five-year low of 60.09 U.S. cents after Lehman
Brothers Holdings Inc.’s collapse in 2008, according to data
compiled by Bloomberg.

China Demand

The change in leadership “is a second-tier driver for the
currency,” Todd Elmer, Singapore-based currency strategist at
Citigroup Inc., told Bloomberg TV. “The biggest story for the
Aussie dollar remains the regional slowdown. Until expectations
on China stabilize, we are going to continue to see pressure on
the Aussie dollar.”